<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 0-18554
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GENZYME DEVELOPMENT PARTNERS, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 04-3065192
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Kendall Square, Cambridge, Massachusetts 02139
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(Address of principal executive offices) (Zip Code)
(617) 252-7500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Total number of pages in document - 13
Exhibit index is located on page - 12.
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GENZYME DEVELOPMENT PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
FORM 10-Q, MARCH 31, 1996
TABLE OF CONTENTS
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Condensed Financial Statements
Statements of Operations for the Three Months Ended
March 31, 1996 and 1995 and Cumulative from Inception
(September 7, 1989) ....................................... 3
Balance Sheets as of March 31, 1996 and
December 31, 1995 ......................................... 4
Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1995 and Cumulative from Inception
(September 7, 1989) ....................................... 5
Notes to Unaudited Condensed Financial Statements ......... 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 8-9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K ................ 10
Signatures ........................................................... 11
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
GENZYME DEVELOPMENT PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31, CUMULATIVE FROM
------------------ INCEPTION
1996 1995 (SEPTEMBER 7, 1989)
---- ---- -------------------
<S> <C> <C> <C>
Investment income ...................... $ 6 $ 9 $ 1,235
Royalty revenue from Genzyme
Corporation........................... 2 -- 2
---- ---- ---------
8 9 1,237
---- ---- ---------
Costs and expenses:
Retainer fee ........................ -- -- 1,500
Research and development ............ -- -- 27,060
Management fee ...................... -- -- 2,613
Interest expense .................... -- -- 933
Amortization of organization
and start-up costs ................. -- -- 570
Other ............................... 10 15 858
---- ---- ---------
10 15 33,534
---- ---- ---------
Net loss ............................... $ (2) $ (6) $ (32,297)
==== ==== =========
Net loss per partnership unit:
Limited partners
(based on 737 units) .............. $ (3) $ (8) $ (43,384)
==== ==== =========
General partner
(based on 1 unit) ................. $(20) $(60) $(322,970)
==== ==== =========
</TABLE>
The accompanying notes are an integral part of these
unaudited, condensed financial statements.
3
<PAGE> 4
GENZYME DEVELOPMENT PARTNERS, L.P.
<TABLE>
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents ......................... $472 $466
---- ----
Total assets ............................... $472 $466
==== ====
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Payable to Genzyme Corporation ................. 125 117
Partners' capital (including deficit accumulated
during the development stage of $32,297):
General partner ............................... 43 43
Class A limited partners ...................... 338 340
Class B limited partner ....................... -- --
---- ----
381 383
Less: unpaid partners' capital ................ (34) (34)
---- ----
Total partners' capital ..................... 347 349
---- ----
Total liabilities and partners' capital .... $472 $466
==== ====
</TABLE>
The accompanying notes are an integral part of these
unaudited, condensed financial statements.
4
<PAGE> 5
GENZYME DEVELOPMENT PARTNERS, L.P.
<TABLE>
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED
MARCH 31, CUMULATIVE
----------------- FROM INCEPTION
1996 1995 (SEPTEMBER 7, 1989)
---- ---- -------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss ..................................... $ (2) $ (6) $(32,297)
Reconciliation of net loss to net cash
used by operating activities:
Amortization .............................. -- -- 570
Organization and start-up costs ........... -- -- (570)
Increase (decrease) in cash from
working capital:
Accounts payable ............................. 8 (156) 125
---- ----- --------
Net cash provided by (used by) operating
activities ................................ 6 (162) (32,172)
Cash flow from investing activities:
Purchases of short-term investments .......... -- (295) (45,220)
Sales and maturities of short-term
investments.................................. -- -- 45,220
---- ----- --------
Net cash used by investing activities ........ -- (295) --
---- ----- --------
Cash flow from financing activities:
Issuance of partnership units ................ -- -- 32,644
Issuance of note payable - bank .............. -- -- 4,100
Repayment of note payable - bank ............. -- -- (4,100)
---- ----- --------
Net cash provided by financing activities .... -- -- 32,644
---- ----- --------
Increase (decrease) in cash and cash equivalents.. 6 (457) 472
Cash and cash equivalents at beginning of period.. 466 618 --
---- ----- --------
Cash and cash equivalents at end of period ....... $472 $ 161 $ 472
==== ===== ========
</TABLE>
The accompanying notes are an integral part of these
unaudited, condensed financial statements.
5
<PAGE> 6
GENZYME DEVELOPMENT PARTNERS, L.P.
(A Development Stage Enterprise)
March 31, 1996
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION
Genzyme Development Partners, L.P. (the "Partnership") was formed on
September 7, 1989 as a development stage enterprise to develop, produce and
derive income from the sale in the United States and Canada of products
(the "Surgical Products") to be used during surgical procedures to limit
the formation of postoperative adhesions and, in arthroscopic procedures,
as a synovial fluid replacement. The Surgical Products are based on
hyaluronic acid, a biopolymer produced naturally by the body to lubricate
and protect tissue. The Partnership commenced operations on November 3,
1989.
Per partnership unit information is based on the number of partnership
units outstanding at the end of each period. Units outstanding have not
changed since the date of capitalization of the Partnership.
These unaudited, condensed financial statements should be read in
conjunction with the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 and the financial statements and
footnotes included therein. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission rules and regulations.
The financial statements for the three months ended March 31, 1996 and
1995 and cumulative from inception (September 7, 1989) are unaudited but
include, in the opinion of management, all adjustments (consisting only of
normally recurring accruals) necessary for a fair presentation of the
results for the periods presented.
2. ACCOUNTING POLICIES
The accounting policies, except as noted below, underlying the
quarterly financial statements are those set forth in Note B of the
financial statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
3. ROYALTY REVENUE RECOGNITION
Pursuant to the European royalty provision in the Cross License
Agreement, the Partnership recognizes royalty revenue due from Genzyme
based on net revenues from the sales of Surgical Products in Europe.
Initial sales of such products have commenced in the Netherlands. In the
three months ended March 31, 1996, royalty revenue from Genzyme of
approximately $2,000 was recognized.
4. DEVELOPMENT AGREEMENT
The Partnership's available funds were fully expended during the first
quarter of 1994. Pursuant to the Development Agreement, Genzyme has
committed to continue funding, for the twelve month period commencing March
1, 1996, the development program at no expense to the Partnership.
6
<PAGE> 7
GENZYME DEVELOPMENT PARTNERS, L.P.
(A Development Stage Enterprise)
For the Three Months Ended March 31, 1996
5. SUBSEQUENT EVENT
On May 3, 1996, Genzyme announced that it was withdrawing its offer to
acquire substantially all of the assets of the Partnership for shares of
Genzyme General Division Common Stock valued at $93 million at the time the
offer was made. Genzyme advised the Special Committee that its decision to
withdraw the offer was based in part on the prompt action taken by the FDA
advisory panel reviewing the pre-market approval application for
Seprafilm[TM]. The speed of the FDA review made it unlikely that Genzyme
could account for the acquisition as a purchase of in-process research and
development, which was a condition to Genzyme's offer. In addition, Genzyme
stated that its decision was also influenced by the decline in the price of
the General Division Stock during the negotiations, which increased the
dilutive potential of the offer and reduced the value of the offer to the
Partnership.
The withdrawal of the offer by Genzyme does not affect the respective
rights and obligations of the Partnership and Genzyme under any of the
existing agreements between the parties. Under the terms of these
agreements, the Joint Venture formed between Genzyme and the Partnership
will manufacture and market the Surgical Products in North America
following FDA approval. The parties have begun negotiations to establish
definitive terms for the operation of the Joint Venture, including the
allocation between Genzyme and the Partnership of profits and losses from
the Joint Venture.
7
<PAGE> 8
GENZYME DEVELOPMENT PARTNERS, L.P.
(A Development Stage Enterprise)
For the Three Months Ended March 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Net losses for the three months ended March 31, 1996 and 1995 were $2,000
and $6,000, respectively, a decline of 67%, due primarily to a reduction in
administrative expenses. The Partnership recognized royalty revenue of $2,000 in
the three months ended March 31, 1996 related to the commencement of Genzyme's
sales of Surgical Products in the Netherlands. Administrative expenses declined
33% to $10,000 in the three months ended March 31, 1996 from $15,000 in the
corresponding period of 1995 primarily due to a reduction in legal expenses
incurred by the Partnership related to maintenance of its patents.
Investment income for the three months ended March 31, 1996 was $6,000 as
compared to $9,000 for the same period in 1995. The decrease resulted from a
decline in the interest rate available in the debt markets which offset the
impact of higher average cash balances.
FINANCIAL CONDITION
- -------------------
As of March 31, 1996, the Partnership had $472,000 in cash and cash
equivalents which is reserved for general and administrative expenses and the
Partnership's commitment to the Joint Venture formed with Genzyme to manufacture
and market the Partnership's products in the North America. Genzyme, for its own
account, initiated marketing efforts for Seprafilm[TM] in Europe late in 1995.
Under the terms of the Cross License Agreement with Genzyme, the Partnership is
entitled to receive a royalty of 6% of net revenues recognized from European
sales of the Surgical Products to the extent necessary to pay certain projected
distributions to the partners in any year. The General Partner believes that the
Partnership will continue to be eligible to receive such royalties during 1996.
The General Partner believes that substantial additional funds will be required
to complete the development, clinical testing and commercialization of the
Surgical Products. Genzyme has funded the research and development program for
the Surgical Products on an annual basis since the first quarter of 1994, when
all the available funds of the Partnership were substantially depleted, and
currently has committed to provide such funding through February 28, 1997. While
Genzyme is not obligated to fund the research and development program, Genzyme's
option to purchase all of the limited partnership interests would terminate
unless Genzyme commits annually to provide such funding until FDA approval of
any of the Surgical Product is obtained.
SUBSEQUENT EVENT
- ----------------
On May 3, 1996, Genzyme announced that it was withdrawing its offer to
acquire substantially all of the assets of the Partnership for shares of General
Division Common Stock valued at $93 million at the time the offer was made.
Genzyme advised the Special Committee that its decision to withdraw the offer
was based in part on the prompt action taken by the FDA advisory panel reviewing
the pre-market approval application for Seprafilm[TM]. The speed of the FDA
review made it unlikely that Genzyme could account for the acquisition as a
purchase of in-process research and development, which was a condition to
Genzyme's offer. In addition, Genzyme stated that its decision was also
influenced by the decline in the price of the General Division Stock during the
negotiations, which increased the dilutive potential of the offer and reduced
the value of the offer to the Partnership.
8
<PAGE> 9
GENZYME DEVELOPMENT PARTNERS, L.P.
(A Development Stage Enterprise)
For the Three Months Ended March 31, 1996
The withdrawal of the offer by Genzyme does not affect the respective
rights and obligations of the Partnership and Genzyme under any of the existing
agreements between the parties. Under the terms of these agreements, the Joint
Venture formed between Genzyme and the Partnership will manufacture and market
the Surgical Products in North America following FDA approval. The parties have
begun negotiations to establish definitive terms for the operation of the Joint
Venture, including the allocation between Genzyme and the Partnership of profits
and losses from the Joint Venture.
9
<PAGE> 10
GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, MARCH 31, 1996
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule for Genzyme Development
Partners, L.P. (for EDGAR filing purposes only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ending March 31, 1996.
10
<PAGE> 11
GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, MARCH 31, 1996
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENZYME DEVELOPMENT PARTNERS, L.P.
(Registrant)
By: GENZYME DEVELOPMENT CORPORATION II
General Partner
DATE: May 15, 1996 By: /s/ David J. McLachlan
----------------------------------
David J. McLachlan
Duly Authorized Officer and
Principal Financial Officer
11
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GENZYME DEVELOPMENT PARTNERS, L.P.
FORM 10-Q, MARCH 31, 1996
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------- ----------- --------
27 Financial Data Schedule for Genzyme Development
Partners, L.P. (for EDGAR filing purposes only). 13
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS OF GENZYME DEVELOPMENT PARTNERS, L.P. FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 472
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 472
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 472
<CURRENT-LIABILITIES> 125
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 347
<TOTAL-LIABILITY-AND-EQUITY> 347
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 10
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
